Aviva hit by dividend warnings as insurer shares tumble

A Keefe, Bruyette and Woods (KBW) warning that Aviva will cut its dividend cut its share price 8.5% to 303p as credit concerns sent the insurance sector lower, the FT reports.

KBW analyst Greig Paterson said recent shareholder presentations from Aviva have shown a "change of emphasis" on the dividend since its finance director, Philip Scott, said he was leaving.

Aviva shares nearly halved in March on concern that management had put financial stability at risk by holding its payout.

No credit for dividend payouts

KBW said Aviva can afford to keep the dividend for 2009 but may decide it is not getting any credit for doing so.

Merrill Lynch also forecast an Aviva dividend cut, although it said the final decision was finely balanced. It estimated a final payout of 23p a share, down 30%.

"If such a cut were announced at the August 6 interim results presentation, we would expect it to disappoint a material constituency of shareholders, the income funds," KBW told clients.

Stability is “eye of the storm”

Merrill Lynch said recent stability could be "the eye of the storm" and that earnings would drop by more than 20%.

Legal & General was the day's sharpest faller, losing 8.7% to 49¾p. The stock suffered on concerns it would be forced to raise capital to meet a Europe-wide tightening of solvency rules, due to take effect in 2012.

12 analysts can’t be wrong

The Times added that 12 leading insurance analysts had forecast that Aviva would cut its dividend by between 25% and 50%.

The consensus forecast is for the UK’s biggest insurer to reduce its total dividend from 33p to 25p. One analyst predicts that the annual dividend could fall to as little as 15p.